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RICHMOND, Va. — Circuit City Stores Inc. on Monday declined a $3.25 billion takeover offer from Highfields Capital Management LP, saying the deal would not be in the best interest of its shareholders.

The electronics retailer said its directors unanimously chose not to further explore Highfields’ unsolicited $17 per share bid or any other sale alternatives.

Instead, its board decided the company can maximize shareholder value by continuing to implement strategic, operational and financial initiatives.

“The board, management and our more than 40,000 associates are focused on that goal by improving our operations and identifying innovations that can enhance our competitive position,” W. Alan McCollough, Circuit City’s chairman and chief executive, said in a statement. “Rewarding our shareholders for their confidence in us has always been, and will continue to be, our highest priority.”

Analysts said the rejection came as no surprise. Circuit City had lost market share to Best Buy Co. Inc. and continues to report disappointing sales. Boston-based Highfields, which submitted the offer last month, is known for its efforts to shake up management at underperforming companies.

“It appears that the offer from Highfields was somewhat motivated by a desire to instigate management to make some changes, and it looks like that’s already occurring,” said Colin McGranahan, an analyst for Bernstein & Co. Inc. in New York.

McGranahan said Highfields made the offer out of “a desire to make their views publicly and painfully known.”

Ripe for takeover
With little debt and more than $750 million in cash, Circuit City has been considered ripe for takeover. The company turned down a bid of $8 per share from Mexican tycoon Carlos Slim in June 2003.

Circuit City still believes it is worth more than it has been offered, McGranahan said.

“The company has a strategy in place to significantly increase the profit of the business,” he said. “If they can execute that strategy, the company should be significantly more valuable than $17 per share.”

Circuit City has made some management changes, including replacing McCollough with Philip J. Schoonover as company president. The board also announced Monday it would double, to $800 million, the amount of its shares it will repurchase.

About a decade ago, Circuit City was the nation’s largest chain of consumer electronics stores. But Richfield, Minn.-based Best Buy, with prime locations and a sharp focus, overtook the retailer in the mid-1990s. Even in Richmond, Circuit City’s headquarters city, Best Buy opened larger, more vibrant stores that drew crowds of shoppers.

Circuit City has sought to turn around its business by redesigning older stores and relocating poor performers, but the retailer has had little success in catching up to Best Buy. It lost $89.3 million on $9.75 billion in sales in its fiscal year ended Feb. 29, 2004. More recently, the company reported disappointing holiday sales in part due to heavy promotions.

Highfields, which holds a 6.8 percent stake in Circuit City, made its offer after expressing dissatisfaction with the retailer’s lagging performance in a meeting with McCollough.

Highfields said it was “disappointed” in the board’s decision but remains willing to negotiate a transaction.

“We are deeply disappointed by the company’s response to our offer,” Jonathan S. Jacobson, Highfields’ managing director, said in a statement. “We remain prepared to consummate a transaction that would be good for Circuit City, its employees and its shareholders.”